The Central Bank of Nigeria (CBN) may lower its targeted trading range for the naira as dwindling foreign-exchange reserves and falling oil prices undermine its ability to halt the currency’s slide, FBN Capital Limited has said. Policy makers may adjust the exchange rate to within a three percentage-point band of N160 per dollar from N155 over the next six to nine months, Gregory Kronsten, an analyst at the Lagos-based FBN Capital, said in an e-mailed response to questions over the weekend.
Lower crude prices are making “it more difficult for the CBN to hold the lin on the naira exchange rate,” he said. FBN Capital is Nigeria’s fourth-biggest broker by trading value on the Nigerian Stock Exchange (NSE), according to the bourse. The naira traded above the band for the first time on a closing basis on June 7 on the interbank market and has ended trading above the peg each day since June 25.
The apex bank, which sells dollars at auctions on Mondays and Wednesdays to support the naira, sold $700 million last week, compared with $600 million the previous week, at 155.76 to 155.79 per dollar. CBN Governor Lamido Sanusi Lamido, in November 2011, devalued the midpoint of the bank’s exchange-rate range at its twice-weekly auctions from N150 The nation’s foreign reserves have declined more than two per cent this month to $46.9 billion on July 18 as the apex bank boosted sales to meet demand amid declining oil prices, the source of more than 95 per cent of Nigeria’s foreign exchange income.
The naira strengthened less than 0.1 per cent to N161.18 per dollar yesterday. The currency has weakened three per cent this year compared with a 0.5 per cent decrease in the currency of Angola, which vies with Nigeria as Africa’s top oil producer. Bonny Light crude, Nigeria’s main export, rose 0.1 per cent to $109.98 per barrel last week. The grade climbed to as high as $120.54 early in the year and fell as low as $100.31. Nigeria’s oil output slid for a third month in June, dropping by 70,000 barrels a day to 1.88 million barrels amid theft and damage to infrastructure, the International Energy Agency, said July 11.
“The oil price has rebounded lately and looks more supported” even though “crude oil production reached new lows in June,” Samir Gadio, an emerging-markets strategist with Standard Bank Group Limited’s London-based unit, said in e-mailed comments. “In the absence of capital inflows over the past two months, the CBN has had to step up its foreign currency auction and direct sales to banks to address the dollar demand-supply mismatch.” Sanusi held the benchmark interest rate at a record 12 per cent for the 10th consecutive meeting on May 21, to check inflation and stabilise the naira.
The Monetary Policy Committee will probably hold the rate when it announces the outcome of its latest decision today, according to all 14 economists surveyed by Bloomberg News. “Despite the recent moderate decline in foreign exchange reserves, the CBN still has enough ammunition to defend the naira for some time,” said Gadio. “The risk is also that the apex bank may be tempted to tighten liquidity conditions further at the MPC, or in coming weeks, although the surprisingly low June inflation rate probably reduces the possibility of a formal hike in the interest rate for now.” The nation’s inflation rate fell to 8.4 per cent in June from nine per cent in May, the National Bureau of Statistics said. Yields on the country’s $500 million of Eurobonds due July 2023 fell one basis point, or 0.01 percentage point, to 5.89 per cent.
The CBN may increase its exchange-rate band to N160 per dollar to increase costs for importers, Sewa Wusu, analyst at Lagos-based Sterling Capital Limited, said by phone. This step “can serve as a check on dollar demand, thereby reducing pressure on reserves,” he added. (The Nation).
